Libor low sees call for higher LTVs

Lenders have faced increased calls to cut their mortgage rates and lend at higher LTVs after the three-month Libor rate fell below 1% for the first time ever last week.

Although Libor and swap rates have been falling, many banks have been pushing up the price of their fixed rate mortgages and only a few have increased LTVs.

John Cupis, managing director, mortgages and general insurance at Sesame, said that a widespread commitment by lenders to increase LTVs to a minimum of 90% was needed for a sustainable market recovery.

He added: "I believe that a return to lending at reasonable and sustainable levels would breathe new life into the mortgage market. First-time buyers hold the key to building the momentum behind a recovery. We need lenders to step up the flow of mortgage funding to first-time buyers and increase LTVs so borrowers can enter the market."

Andy Pratt, chief operating officer at Alexander Hall, said that lenders were not helping the bottom end of the market because they remained concerned with attracting low risk business.

He said: "Appropriate risk-based lending is needed for the mortgage market. It would be helpful if lenders could allocate and put aside defined tranches of money at a higher LTV for different categories of customers."

However, Sue Anderson, spokesperson for the CML, pointed out that lenders were struggling to decrease rates and increase LTVs as they were facing constraints in the market.

She said: "There is no single measure of lenders' funding costs. Swap rates are often given as a reason to decrease rates but are only one part of the jigsaw. The cost of underlying variable rate funding needs to be taken into account as does the fact that not all lenders will be able to raise funds at Libor rates in the current environment."

Jack Saxton, managing director of Halifax Intermediaries, agreed, saying: "There has never been a tougher and more complex time during which to price products. Intense competition for savings business combined with the shortage and expense of wholesale funding are only some of the additional pressures on pricing."

He added that lower rates and higher LTVs alone would not improve the market. "Confidence is also very important. A market return is also dependent on increased availability of housing stock. If people are nervous about moving because they are worried about their job, this limits opportunities for first time buyers to make the purchase."